Bad credit business loans

What's the difference between a personal and business credit score?

The idea behind a credit report, whether business or personal, is to give lenders an indication of how risky the borrower is. Both your business and personal credit scores will play a role in your ability to get a loan. But they are not the same thing.

The main difference between the two is that your personal credit file will contain information on your individual consumer credit activities. In contrast, your business credit file will contain information about your commercial credit activities. Your business credit score does not impact your personal credit score, and vice versa.

• Personal credit file. Your consumer credit file will include your personal details, your credit accounts, any negative listings such as defaults or missed payments. It will also include any consumer credit inquiries, as well as information on public record such as bankruptcies and court judgements. It will also list whether you've operated a business before.
• Business credit file. Your business credit file will contain company details, including information on company structure and current shareholders. It will also include registered defaults, potential loan inquiries or any external administration that may be registered against your business. Additionally, any public record information, like any legal matters or action taken against your company by Australian Prudential Regulation Authority (APRA), will be included. Any information the Personal Property Security Register (PPSR) has on your company's possessions will also be on your credit file.

You can check your business credit score

Bria Horne

Expert overview: 3 things you should know when getting a business loan with bad credit

• Lenders consider the financial standing of the business itself, as well as its directors. Having bad credit, therefore, won't necessarily prevent you from getting a loan.
• If you have bad credit, it may be more difficult to get finance from high street banks. But there are a number of smaller lenders that will consider your application.
• Bolster your application with a business plan, detailed financials and financial forecasts. This can help increase your chances of getting a loan.

How can I get a business loan with bad credit?

Traditional banks may be tough on businesses with bad credit. But there are alternative financial lenders with relaxed criteria, and they are open to lending to bad credit businesses. Alternatively, you could also opt for a secured loan or a different type of loan, such as invoice factoring.

Secured bad credit business loans

If you apply for a secured loan, using an asset as collateral, the lender may consider lending to you as being less risky. Here's what you need to keep in mind when applying for a secured business loan:

• Assets such as business equipment, vehicles, property and funds in savings accounts can be used as collateral.
• These loans are generally granted by banks. Terms and conditions differ, so it's a good idea to shop around for a loan that suits your budget.
• You could receive more competitive interest rates with a secured loan.
• But, if you can't make your repayments, the lender will sell your assets to cover what you owe.

Alternative lenders

A number of alternative financial lenders have entered the market and are willing to cater to businesses with less-than-perfect credit or no security. These alternative lenders include peer-to-peer lenders and non-bank lenders. Here's what you need to keep in mind:

• Alternative lenders offer a small portfolio of loan products.
• Bad credit isn't a determining factor. You need to demonstrate that your business has the capacity to repay the loan.
• Interest rates for bad credit borrowers may be higher. Some lenders may opt for risk-based lending or personalised rates.
• Loan terms may be shorter. Responsible borrowers may be rewarded with better rates the next time they apply for a loan.
• You may not have to offer security for the loan.
• The application is quick, often with same-day approval.

Invoice financing

If you have outstanding invoices that are tying up your cash flow, you could consider invoice financing. This is a type of invoice-based lending, where you take a loan against your unpaid invoices. You can convert some or all of your unpaid invoices into funds. This option is becoming popular as:

• Your bad credit history doesn't play a role
• No real estate is required as collateral
• You will receive a certain percentage of the invoice, usually 80 to 90%; the remaining will be transferred to you once the customer pays, minus the company's fee
• Turnaround times can be fast
• You can enter into an ongoing arrangement with the financing company

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Product AUFBL	Min. Loan Amount	Max. Loan Amount	Loan Term	Upfront Fee	Filter Values
ScotPac Invoice Finance	$10,000	$150,000,000	From 1 year	No set amount		Improve your business cash flow by financing your outstanding invoices. No minimum trading history required, but minimum 12 - month term and $10,000 in invoices.	Go to siteMore Info Compare	loading Fetching your data...
ScotPac Selective Invoice Finance	$10,000	$1,000,000	1 to 3 months	$500		Finance your unpaid invoices on demand with terms of 1 - 3 months. 95% of invoice is paid upfront, with no minimum trading history required.	Go to siteMore Info Compare	loading Fetching your data...

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How can I compare business loans?

Here's what you need to keep in mind when comparing loans:

• Does the loan meet my needs? You need to take into consideration why you need the loan. Is it for long-term investment, to upgrade equipment or to overcome cash flow shortages? Take the specific needs of your business into consideration and look for a loan suitable for those needs.
• Can I afford the loan? What's the interest and comparison rate? The latter will give you an indication of the true cost of the loan. It includes interest and fees that come with the loan. You can use a business loan calculator to help you determine whether you can afford it. It's important to apply for a loan you can afford. If lenders feel you can't, they will reject your application. Additionally, getting into debt you can't afford will lead to long-term financial difficulties.
• What is the loan term? How long do you have to repay the loan? It's important to take into account the loan term as this will determine how much interest you'll be paying over the years. This will add to the cost of the loan.
• What is the eligibility criteria? Bad credit loans have a more flexible criteria, but you will still need to meet the lender's minimum requirements. Check the minimum monthly turnover and minimum operating period required. Only apply for a loan if you tick all the boxes.
• What are the loan features? Does the loan offer features you would find useful? For instance, if you're a start-up, you may be unsure of your cash flow. If so, you may want the ability to top-up your loan. If you're taking a loan to buy stock that will be sold in the next 6 weeks, a loan with terms longer than a year may be unsuitable.
• Are the repayments flexible? Do the repayment terms suit your business's cash flow? Some lenders may allow you to repay the loan daily, weekly, fortnightly or monthly. Does the loan give you the flexibility you need to manage your business?

How can I improve my business credit score?

You should first get your hands on a copy of your business credit report. Take a look at all your credit accounts and ensure the information is accurate. You should inform the credit reporting agency if there are any errors. This can include basic information like your name or address, or the amount of debt listed.

To improve your score, you should:

• Make payments on time. Pay all your bills on time, including electricity, gas, rent and mortgage payments.
• Reduce your credit card limit. The bigger the limit, the bigger the liability to lenders.
• Pay more than the minimum on your credit card. Pay the amount in full, if possible. Paying off debt on time can help improve your score.
• Limit how many credit applications you make. Applying for many loans in a short period of time will result in many hard credit checks. This can impact your credit score greatly. Select one loan and apply for it.

If your application got rejected, wait for 3 to 6 months before applying again. You can work on improving your credit score in the meantime.

What should I be aware of before applying for a bad credit business loan?

• Disreputable money lenders and loan sharks. Unfortunately, there are disreputable lenders that offer what appear to be attractive rates or financing for bad credit applicants. You should be wary of any offer that seems too good to be true. It's best to check if the lender is reputable and what its history is. You should also be wary of loan sharks who charge extremely high interest from desperate borrowers. Plus, you want to check the lender's website and make sure the lender is reputable. Check if they're registered with the Australian Securities & Investments Commission (ASIC). Plus, the lender should be easy to contact.
• Getting into debt you cannot afford. Check the cost of the loan and make sure you can afford it. You should be able to comfortably include your repayments in your budget. You should also avoid borrowing more than you need.
• Multiple applications. Every loan application shows up on your credit report. Several applications within a short period can have a negative impact on your credit score. This can make it harder for you to get a loan in the future. Select a single loan and lender that you're eligible for and that suits your needs and apply with them.
• Long-term repercussions and legal issues. Once you sign a loan agreement, you are bound to its conditions. You will have to pay the loan and all the fees. Keep in mind that for unsecured loans, the lender can initiate legal proceedings against you if you don't repay the loan. It can also report the debt to a credit reporting body like Equifax and use the services of a debt collector. With secured loans, your loan security can be repossessed by the lender if you fail to make your repayments.

How can I apply for a bad credit business loan?

🤔 Work out what type of finance you need, how much you need to borrow and what you can afford.

🔎 Start comparing lenders and loan products. Don't forget to compare interest rates, fees and eligibility criteria. You can use the comparison table above.

✅ Select a lender. Click "Go to site" to be directed to the lender's page, or "More info" if you want to read about the lender.

🖨️ Organise and prepare the required documentation. This can include proof of identification, financial statements for the last 3 years, your business plan, financial forecasts and personal financial information.

📱 Apply. Most lenders have their applications online.

Frequently asked questions

• What do I need to apply for a loan?

  This will depend on the lender. Some new lenders may let you connect your business's accounting software to their systems. This allows the lender to make a decision within minutes. Other lenders may need your business financials to make their decision.

• Can I use a personal loan to finance a business?

  If you're looking for a small loan, you can use a personal loan for business purposes. It will depend on the lender. There are also bad credit personal loans. Keep in mind that these loans are designed for personal use. They won't be able to offer the flexibility and features a business might need.

• I need to purchase equipment. Should I purchase the equipment with a loan or a lease?

  This will depend on whether your business can afford it and how long you need the equipment for. If it's only for the short term, there are some lease options. These include hire purchase and finance leasing. You can read more about your options here.

Written by

Elizabeth Barry

Lead Editor

Elizabeth Barry was the lead editor for Finder. She has over 10 years' experience writing about a range of topics with a focus on personal finance. You’ll find her writing and commentary in a range of publications and media including Seven News, the ABC, MSN, the Irish Times and Singapore Business Review. See full bio

Elizabeth's expertise

Elizabeth has written 211 Finder guides across topics including:

• Banking
• Personal finance
• Investing